Fund Managers’ Short Gold Bets Hit Record: DJ

By Brendan Conway

Dow Jones Newswires’ Matt Day finds a record number of bets on lower gold prices in the weekly Friday regulatory data on the market for the commodity’s futures and options.

From Day this afternoon:

NEW YORK–Money managers held a record number of bets on lower gold prices on the main U.S. gold exchange, according to data released Friday by the Commodity Futures Trading Commission.

Hedge funds and other investment managers tracked by the commodity regulator boosted their bets on lower Comex-traded gold futures and options by 33%, to 65,617 contracts, during the week ended Tuesday. That is the most in weekly CFTC data going back to June 2006.

Money managers still held more bets that prices would rise than bets they would fall, though by the lowest margin in more than four years. Their net long, or the amount of bets on higher prices less the number of bets on lower prices, stood at 42,318 contracts, the least since November 2008.

The funds’ retreat from the gold market has come as futures prices sank to multimonth lows. Some investors buy the metal in the belief that it will outperform other assets during economic turmoil, and especially when the threat of inflation is high.

With the U.S. economy showing signs of recovery, Europe’s debt crisis in a quiet period, and Chinese data revealing an uptick in economic growth, investor demand for gold has waned. The rise of U.S. stock markets to multiyear highs has also spurred money managers to exit gold bets, analysts say.

This week, speculation that the Federal Reserve may pull back its easy-money policies has limited expectations for inflation.

Comex gold futures for April delivery on Friday settled down 0.4% at $1,572.80 a troy ounce, a seven-month low.

"You can be absolutely sure, Eric, that the bullion banks are short covering into this supply. Their footprints are all over it. I mean the premiums in Shanghai this morning were over $24 an ounce for gold. We’re (trading) $1,608 (for gold) in Shanghai. The paper market longs have been tricked into selling. Obviously the managed money and the specs are now being tricked into short selling. Who do you think is on the long side of those trades?

These bullion banks have actually successfully transferred massive short positions into very weak hands. And this next week is going to provide large short fuel above the market. As soon as this leveraged selling is insufficient to meet the bullion bank buying, which will happen, if not today it will be early next week.

They are simply going to run out of sell power vs what the bullion banks are forced to buy because the physical market is so strong.”

Eric King: “Andrew, as you know they’ve been all over the mainstream media trumpeting the end of the bull market. They are talking $1,200 gold and claiming a collapse is in front of us here, your thoughts on that?”

Maguire: “Yes, you’ve seen an absolute crescendo of it. It’s by no coincidence either, talking about the ‘Death Cross,’ (and saying) Soros sold. Soros sold a measly 18 tons last year. You don’t think the guy is on the bid now?
Do you remember when you and I had this talk at the end of last year when all the rumors were that Paulson was selling? Do you remember that you and I said ‘that’s impossible. I guarantee he’s not selling.’ Sure enough he had not sold. He’s the one that’s holding on to his gold position.

But the disinformation out there is amazing. This bottoming process happens as they (the bullion banks) transfer their short positions into the weaker hands. Because the physical market is extremely well bid here, what you are going to see is a rapid turnaround.
There is a huge amount of short fuel above the market. I see the managed money short position, and it’s in bubble territory. This short fuel above the market is going to force even more short covering activity because once they see prices move into the $1,600s again, you are going to see some stop limit orders coming out of the central banks. The discount is over at that point.”

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Chris Dieterich has covered the U.S. stock market for The Wall Street Journal and Dow Jones Newswires. He is a graduate of Regis University and the Missouri School of Journalism.